Asia fills aviation funding gap amid Europe's woes

AFP, Sunday 4 Mar 2012

Airlines turn to Asian banks and capital markets to help with fleet upgrades as European finances run dry

 Capital-starved airlines worldwide are turning to Asian lenders to fund their ambitious fleet upgrades as the industry's traditional streams of financing in the West dry up, experts say.

In another sign of the world's shifting economic fortunes, Asian banks, capital markets and leasing firms are stepping in to help airlines cope with rapid growth in travel, according to industry executives and analysts.

"In this part of the world there is a lot of financing," Jim Albaugh, chief executive of Boeing Commercial Airlines, told reporters during a visit to Singapore last month.

"If you talk to the leasing companies... they will tell you that they think the capital is out there to finance the planes that are going to be sold over the next several years," he said.

Boeing estimates that in 2012, commercial airlines worldwide will need about $100 billion to finance new plane deliveries, up from $75 billion last year, in large measure due to surging Asian demand.

Europe's debt crisis is curtailing lending from regular funding sources, mostly French and German banks, but Asia is helping to plug the gap with industry estimates projecting an annual demand for 1,000 new planes over this decade.

Of that projection, which runs through to 2021, 500 new planes will be added in Asia each year, David Stewart, vice president of aviation consultancy ICF, said on the sidelines of last month's Singapore Airshow.

Underscoring Asia's growing muscle in aviation finance, Britain's Royal Bank of Scotland Group in January sold its aircraft leasing division to Japan's Sumitomo Mitsui Banking Corp. for 4.7 billion pounds ($7.3 billion).

Paul Ng, global head of aviation at the law firm Stephenson Harwood, said banks in China, which have been financing domestic carriers for over a decade, are now "starting to look overseas for potential clients".

US and European carriers "are starting to appear" at airplane financing conferences in Asia "to speak with Asian banks and lessors, which would be quite a rare sight just a few years ago", Ng told AFP.

Robert Martin, chief executive of Singapore-based BOC Aviation, said the aircraft leasing firm raised $1.7 billion last year, with 70 percent of the money coming from Asian banks. They included DBS, OCBC and UOB -- all Singapore lenders -- along with Malaysia's Maybank and the Development Bank of Japan.

BOC Aviation, wholly owned by Bank of China, aims to raise $1.5 billion-$2.0 billion this year, with most of the funds again sourced from Asia, Martin told AFP.

"The real issue over the last year and going forward is access to US dollars," he said at a Singapore Airshow forum, projecting global demand for aircraft financing to rise 42 percent between 2011 and 2013 alone.

"But the good news is that we've seen a lot of Asian institutions that are very active in this market. We've been pleasantly surprised by the wide array of institutions all over Asia that are involved in this business."

David Brotherton, an asset finance partner at international law firm Berwin Leighton Paisner, which helps arrange deals in the industry, said Chinese and Singapore aircraft leasing firms in particular are emerging as a force.

Brotherton said one of his firm's clients, China's ICBC Financial Leasing, has "a number of financial leasing relationships with airlines worldwide", among them Air Berlin for Airbus A319 aircraft.

Aviation Capital Group, a California-based aircraft leasing firm, raised Sg$150 million (US$120 million) from the Singapore bond market recently, and Hong Kong's Cathay Pacific Airways also tapped the Singapore market for Sg$100 million last month, industry sources said.

But less established players are also thinking big.

In February, Boeing and Indonesian budget carrier Lion Air signed a $22.4 billion deal for 230 aircraft -- the single largest contract in commercial aviation history.

Lion Air said the purchases would be financed by funds from the US Export Import Bank, private lenders such as the French bank BNP Paribas and the carrier's owners, the wealthy Kirana family.

But Nicolas Parrot, managing director and head of aviation finance for the Asia-Pacific at BNP Paribas, said "a quite dramatic change to the geographical weight" of Europe and Asia in terms of financing plane purchases was underway.

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